Televisa Hit by $105 Million ‘Must-Offer’ Loss

But pay TV, Univision remain big growth drivers at the TV giant

MADRID – Mexico’s Televisa Group faces a $105 million loss this year from sales of its programming to local pay TV operators after new regulations oblige it to offer free-to-air programming to Mexican satellite/cable players at no charge at all.

Just how much of a blow the so-called must-offer requirement will be for Televisa’s bottom-line is, however, another question.

Confirmed Friday by Mexico’s Federal Telecommunications Institute (IFT), the must-offer reg reps a triumph for Dish TV, the main competitor of Televisa’s Sky satellite service. Dish TV has been retransmitting Televisa and Azteca signals since last September and argued that it’s under no obligation to pay for them given the must-offer ruling, first sketched out in a June law.

Backed up by Mexico’s Supreme Court, which has authorized the IFT to rule on must-offer regulation, the new ruling signifies 1.4 billion pesos ($105.6 million) less to Televisa in 2014, the company declared last week.

The real question, however, is how much more of a competitor the must-offer rule makes Dish TV in Mexico’s pay TV market, especially since Telmex, a subsid of Televisa arch rival, Carlos Slim’s America Mobile, has insisted for years that it has an option to buy a controlling stake in Dish TV, should Telmex ever be permitted to offer video services.

On the upside, however, Televisa can look to pay TV and Univision for robust gains in its business.

Between them, Sky and cable and telecom now rep 44.2% of Televisa’s net sales. But Televisa’s content sales only edged up 2.8% last year to $2.5 billion, in part because of the negative impact of factoring in the must-offer ruling.

Still, Televisa’s shares spiked 5.3% from the opening of trading on Friday through late afternoon Monday after the announcement of full-year results and an anonymous investor taking a $125 million stake in Univision, valuing it at 15 times core profit.

Televisa has an option to convert its debentures in Univision into stock. Without exercising that option, it has increased the fair-value of that option by $385 million, a conservative valuation, per Televisa chair Alfonso de Angoitia.

At least in the short term, for the market, Univision and pay TV have offset the impact of the must-offer reg.